Gundlach’s Forecast for 2021 – The Year of Regime Change

In his forecast for 2021, Jeffrey Gundlach predicted a “regime change.” Investors should prepare for themes that reverse prior trends: U.S. equities will underperform the rest of the world, inflation will rise, volatility will be higher, and the dollar will weaken.

Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital, a leading provider of fixed-income mutual funds and ETFs. He spoke to investors via a conference call on January 12. Slides from that presentation are available here. This webinar was his annual forecast for the global markets and economies for 2021.

Before we look at Gundlach’s 2021 predictions, let’s see how well his forecast from last year, which I reported on here, held up:

  • The yield curve will steepen – Correct, the 2-30 year spread went from 75 to 152 basis points
  • Long-term rates will rise – Incorrect, the 30-year yield went from 2.33% to 1.65%;
  • Gold will go up – Correct, the GLD ETF returned 24.81%;
  • There is a 30-35% chance of a recession – Correct;
  • Inflation will be subdued – Correct, inflation was 0.62%;
  • Stocks and bonds will not do as well in 2020 as in 2019 – Stocks correct (based on SPY, 31.22% in 2019 versus 18.27% in 2020); Bonds incorrect (based on AGG, 8.46% in 2019 versus 7.48% in 2020);
  • The dollar will weaken – Correct, the DXY went from 96.85 to 89.94
  • Bernie Sanders would be the Democratic nominee – Incorrect
  • Commodity prices will be higher – Incorrect, the GSCI index had a return of -23.94%;
  • Emerging markets would do well – Correct, the EEM ETF returned 17.03%
  • European stocks will do poorly – Correct, the SPEU ETF returned 6.37%, about 12% worse than SPY);
  • China would do poorly – Incorrect, the MCHI ETF returned 27.78%
  • Among bonds, BBB would outperform B bonds – Correct, BBB returned 9.88% versus 4.59% for B bonds

That is nine correct and five incorrect predictions.

The subtitle of his talk was Aqualung, in recognition of a Jeff Koons sculpture from the 1970s (Gundlach is a follower of contemporary art). The aqualung is an artificial breathing device, and he used it to signify the tools (such as monetary policy) that are benefiting the capital markets to help them survive.